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Underpricing and Firm Quality in Initial Public Offerings: Evidence from Singapore
Author(s) -
Hameed Allaudeen,
Lim Guan Hua
Publication year - 1998
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/1468-5957.00197
Subject(s) - initial public offering , tranche , procurement , business , underwriting , monetary economics , tender offer , quality (philosophy) , economics , finance , financial economics , marketing , corporate governance , shareholder , philosophy , epistemology
Firms seeking initial public listings on the Stock Exchange of Singapore can choose between offering their shares at a fixed price or selling them in two tranches: the first tranche is offered at a fixed price while the issue price of the second tranche is determined via a tender system. Consistent with the existing signalling literature, tendering IPO firms underprice their fixed price tranche more than non‐tendering IPO firms. The underpricing in the fixed tranche is recouped through higher proceeds from the tender tranche. Our evidence suggests that IPO firms use the tender option to signal superior firm quality.